First off I'm in college, in the UK, and I had left my USB in class and when I went back to look for it, it was gone.
Turns out it was handed in to a lecturer and they went through it.
Now they are going to check my work, since they found folders that have suspicious names, other peoples names on them; one of the folders was a backup folder that was randomly named a persons name, which was not mine, although the work in it was mine. The other folder was also named a name other than mine and had someone elses work in it, which they had given me, and I only used it for reference against my work to make sure I wasn't missing anything.
I'm really worrying and panicking as to what could happen?

I had left the USB in class by mistake, and they didn't know whose it was; it also had stuff on it that will count towards my final mark, but I used the other persons work on there as reference to my own (so to make sure that I hadn't missed anything out).

I hope you do know if it is a public school then they actually do have the right...

My teachers asked to search my pockets all of the time when I was high school and I just laughed at them and there was nothing they could do. I'm assuming it's pretty similar when it comes to search the contents of an electronic device. I think the only exception would be if you set off a metal detector or if USB drives were banned from schools (which would make no sense)

Can they use it as evidence and actually penalize you? Sounds unlikely

When they asked what the work was on there for and if I needed it I said I didn't and deleted it, they then followed up with "I'll have to check your work".
So now there isn't any evidence, unless they copied the contents of the USB.

Bit rude of them to go through it and you're a bit stupid for naming folders with people's names. Most normal people would name it, 'coursework', not 'peter'. If you have a reason for naming your folders by people's names, then you may get yourself out of this situation, but if not, you might be screwed.